HMRC Connect – how the taxman is spying on you

Earlier this week, we wrote about Chat GPT and the way artificial intelligence (AI) is transforming the way we work. But did you know that HMRC has its own, super powerful AI system – HRMC Connect – that’s able to snoop on huge amounts of your personal and financial data?

It’s well known that HMRC uses a broad range of techniques to encourage us to pay the correct taxes. Last year we told you about how the taxman’s Behavioural Insights Team uses ‘nudge’ tactics to increase compliance. If you found that unsettling, HMRC Connect takes ‘Big Brother’ surveillance to a completely new level.

What is HMRC Connect?

Back in 2015, the Telegraph reported that the taxman developed the HMRC Connect system over seven years at a cost of £80 million. As the newspaper said at the time, it is used to “scour vast databanks of personal and commercial information, seeking to unearth links between individual taxpayers and businesses, income, assets and transactions.”

Having done that, the system compares the data with the information taxpayers provide on their tax return. If it spots any discrepancies, it’ll flag them up and you could become the focus of a tax investigation.

How does it work?

Fast forward eight years. In that time, HMRC Connect has become even more sophisticated. According to This is Money, the system now holds 55 billion items of data relating to taxpayers.

The range of information HMRC Connect can gather is staggering. It includes:

• Bank records. Information from UK bank accounts and those in 60 overseas countries.
• Savings, pensions and investments records. Allowing it to check you are claiming the correct pension reliefs, whether you’ve exceeding your ISA allowance and more.
• Land Registry records. To check whether a taxpayer should be able to afford a property.
• Credit / debit card payments. From providers such as Visa and Mastercard. This can allow HMRC to compare transactions with your declared card takings.
• Activity on online platforms. These include sites such as eBay and Airbnb, to check whether you are trading or hiring out property without declaring it.
• DVLA records. To check whether you should be able to afford to buy or make payments on a car.
• Earnings and benefits. Including money you receive from casual employers, any company benefits you receive, any maintenance payments you get and more.
• Social media. The system can scrape public social media accounts to gather information about your lifestyle or any evidence of unusually high expenditure.
• All tax documents. Including your VAT, Self-assessment and council tax records, plus information on any tax investigations.

Most worrying of all, HMRC has the power (via the so-called ‘Snoopers Charter’) to use the system to analyse your web browsing history or email records.

An example of how HMRC Connect might work

The This is Money article says that in 2022/23, over 5,000 buy-to-let landlords didn’t declare enough income. This is a rise of 83% in a year.

Theoretically, HMRC Connect could identify landlords in a variety of ways. It could check Land Registry records to see whether you’ve bought an additional property. Next it could check sites like Zoopla or RightMove to see whether the same property has been advertised for rent. Then it could look at sites like Airbnb to see whether it has been offered as holiday let. If things didn’t add up, the system could then start examining your financial records to see whether you’ve started receiving potential rent payments.

In other words, the system could potentially spot one new transaction – in this case a house sale – and instantly cross reference it with a huge number of other data points. This could then lead it flag up an individual’s tax affairs.

Problems with the system

Because the system is fully automated and uses so much data, there’s a danger of it flagging up false positives. This could lead to individuals or businesses being subject to unnecessary and expensive tax investigations. However, HMRC says the Connect system is not the sole factor it uses to decide when to open an investigation.

What does HMRC Connect mean for me?

In short, HMRC Connect means it is harder than ever to avoid paying tax. As the system improves – and it will, given the recent leaps forward with AI – it will be able to pinpoint non-compliance with increasing accuracy.

Of course, the best approach is to make sure you’re paying the right amount of tax. To do that, it’s wise to use a good accountant like THP. This will help you avoid making mistakes on your tax returns, which in turn could trigger an expensive tax investigation.